[from exmsft:]
I contacted Microsoft Support, and after working my way up the escallation tree, I got to a tech with some knowledge.
Apparently this problem is related to the Shell Icon size. If you are using large icons in your shell and install IE 7, this problem appears.
You can test this by changing your shell icon size by right clicking on the desktop (in a blank area of course), select the Appearance Tab, click the Effects… button, and uncheck Use Large Icons. Then go to the CD drive in Windows Explorer and observe that the bug goes away.
The use large icons sets a registry setting to 48.
You can use regedit to set that eky and one (1) other key to 47 so that you have large icons and no bug when viewing your CD drive in Windows Explorer.
Set the following two (2) registry keys to 47.
HKEY_CURRENT_USER\\Control Panel\\Desktop\\WindowMetrics\\Shell Icon BPP
HKEY_CURRENT_USER\\Control Panel\\Desktop\\WindowMetrics\\Shell Icon Size
Happy Computing!